Column: Making sense of the local pension problems
We respect everyone’s right to an opinion. We also appreciate the tremendous pension burdens felt in locales like Prescott that have seen employer contribution rates climb and funding levels fall for years. Still, when appropriate, we owe it to our members, our employers and the public to convey the facts.
Recent coverage and commentary in the Prescott Daily Courier has portrayed PSPRS, the state’s public safety pension provider, as inept, mismanaged and perpetually in a state of crisis. We disagree. In fact, despite the pension status of a number of local governments throughout the state, PSPRS has performed well despite factors outside of our control.
Right now, PSPRS investments outperform two-thirds of their peer pensions and by diversifying investments across a dozen asset classes we take less risk than almost all similarly sized funds. Maintaining a low risk level is crucial for PSPRS, as a single year of investment losses could and would put an even greater burden on distressed employers like Prescott and many of Arizona’s fire districts.
While our assets recently surpassed $9 billion, our investment returns are elite among pensions that operate with a similar risk-averse strategy. We’re also quickly closing the performance gap and even in some cases outperforming more aggressive plans that can afford to make riskier investments that are capable of producing very high returns.
Our plan also stacks up well against private sector investment funds. We outperform index funds (even after fees), in which we also invest. Our investment team is also beating the majority of almost 200 retail mutual funds with similar balanced portfolios and we are still paying less in fees than they charge.
These days, some PSPRS critics claim recent PSPRS investment returns ensure that the public safety pension system is a house of cards destined to come crashing down. The fact is that no public pension in the country made their assumed rate of return last year. The true reasons for the current and low funding level of PSPRS aren’t a year or two or even three years of investment performance.
PSPRS, like any institutional investor, suffered heavily from Dot.Com crash of 2001-02 and the housing market crash of 2007-2008. These were global events of which PSPRS has no semblance of responsibility or influence. PSPRS did, however, respond by lobbying the state Legislature for years to change laws so we could make investments that produce results while operating with absolutely minimal risk levels.
We also played a direct role in crafting pension reforms in 2011, and, most recently, 2016 that will save money and reduce long-term employer costs in the coming years. These reforms included the elimination of a PSPRS retiree benefit increase formula that placed a disproportionate burden on small governments like Prescott and depleted funding needed to provide retirement benefits to members.
Right now, many local governments, like Prescott, are considering taking action to pay down their public safety retirement liabilities. Contrary to some claims, increasing payments does have the effect of decreasing the liability and reducing the future burden on local governments and taxpayers. Barring extreme circumstances, every extra dollar paid is a dollar — or two — saved in the future.
As chairman of the PSPRS Board of Trustees, I wish to assure the firefighters and police officers throughout the state that our board and agency are dedicated to our members, their employers and taxpayers. Our goal is to provide sustainable benefits for the state’s public safety employees and financial predictability and affordability for employers.